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Financial Planning For The 100-Year Life

By Gregg McClymont, Head of Retirement Savings

One of the most talked about issues among financial advisors is their proper role in making client investment decisions. The trend towards outsourcing is a powerful one as regulatory requirements encourage advisors to use external expertise.

But there are other factors encouraging advisors to move in this direction - not least time constraints, finite resources and, importantly, the view advanced by an increasing number of advisors that comprehensive financial planning demands an engagement with clients across a whole range of issues. Investment strategy on this argument becomes a secondary rather than a primary function of the financial advisor, who is a life coach, planner, cash flow modeler, tax expert and (perhaps) investment stock picker.

The jury is out on whether this is the wave of the future in financial advice. But reading Andrew Scott and Lynda Gratton's study of the implications of continuing-to-rise longevity "The 100 Year Life" it seems that according to their vision of the future, there may be opportunities for advisors.

They argue that actuaries around the world are significantly underestimating longevity. Using cohort estimates, which allow for rapid dynamic changes, rather than the period estimates favored by actuarial best practice, Gratton and Scott factor in further rapid improvements in longevity that history suggests are probable. Since 1800, longevity has risen in a straight line. The difference in inputs produces very different outputs. Thus actuarial estimates of average life expectancy are, in rich nations, currently around 80 to 85 years whereas Gratton and Scott put the life expectancy of a child born today in a developed nation at 100. That's a big difference.

There will inevitably be debates about their models. Actuaries may claim that the past in itself is no guide to the future. But assuming this continuing steady rise in longevity enables Gratton and Scott to ask searching questions about the way in which society will have to adapt to even longer lived lives. Education, work and retirement will no longer be three successive life stages but elements in a much more fluid multi-stage lifecycle.

This might sound like piecemeal change, but Gratton and Scott seem to think otherwise. The shift required in the organization of life is as fundamental as the changes that accompanied a transition from an agrarian to an industrial society in the nineteenth century in some developed countries.

Who will be our guides in the shift to a multi-stage life? Gratton and Scott emphasize the role of institutions - government and businesses - in smoothing what will undoubtedly be a long period of difficult change as the old world gives way to the new. Even more so, they emphasize the role of individuals as change agents. It will be individuals demanding greater flexibility in the way they live their 100-year lives that will drive the fundamental lifestyle changes necessary.

But individuals will need guidance and help - essentially, advice. Financial security could be a pre-requisite. Funding the 100-year life will be daunting. Financial advice will be the starting point, but individuals will need more coaching as the world changes.

Gratton and Scott ask: "Might these extra years, distributed throughout a life, bring the time and opportunity to explore who you are and arrive at a way of living that is nearer to your own personal values and hopes than to the traditions of the society into which you were born? If so, then this is perhaps the greatest gift that longevity can bestow."

If they are right, then people will need more than financial advice. They will need lifestyle financial planning. This need exists now. How much greater will be the need if, as Gratton and Scott predict, the life expectancy in 30, 40, 50 years times of a middle aged man or woman is 100? Truly, at that point, the need for help in plotting these altered lives will surge. One thing's for sure - a 100-year life will need serious planning.

Additional Disclosure: Forecasts are offered as opinion and are not reflective of potential performance, are not guaranteed and actual events or results may differ materially.

None of the above information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.